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Commodity and transportation economic market interactions revisited: New evidence from a dynamic factor model

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  • Angelopoulos, Jason
  • Sahoo, Satya
  • Visvikis, Ilias D.

Abstract

To the best of our knowledge, this is the first paper, to utilise a novel dynamic factor model to investigate the economic relationships between 65 commodity (including oil, energy, metal, ores, and agricultural products), maritime transportation (including tanker and dry bulk freight rates) and financial (including derivatives products) markets, under three different frequencies (daily, weekly and monthly) in a single methodological framework. The paper overcomes a limitation of the previous literature that uses pairwise models, and as such, informational cross-market relationships which may have been ignored or not captured are uncovered for the first time. Results indicate strong economic relationships from commodity to freight markets, with crude oil prices serving as the leading (price discovery) indicator among all the investigated markets, but also between different sub-markets. The results are important to international investors and traders, but also provide essential insights to policymakers and regulators, in terms of commercial strategies, asset positioning, network supply chain modelling, asset investment allocation, budgeting and risk management.

Suggested Citation

  • Angelopoulos, Jason & Sahoo, Satya & Visvikis, Ilias D., 2020. "Commodity and transportation economic market interactions revisited: New evidence from a dynamic factor model," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 133(C).
  • Handle: RePEc:eee:transe:v:133:y:2020:i:c:s1366554519311081
    DOI: 10.1016/j.tre.2019.101836
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    Keywords

    Commodity and freight markets; Derivatives markets; Dynamic factor model; Price discovery; Leading indicators;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C38 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Classification Methdos; Cluster Analysis; Principal Components; Factor Analysis
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications

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